Global M&A activity in the information technology sector during 2020 exceeded 2019 levels, despite uncertainty around the COVID-19 pandemic. Most of this activity took place during the latter end of the second half of the year, as lock-down restrictions were eased.
Most industries were forced to implement various coping mechanisms in order to adapt with the change presented by COVID-19. Many organisations implemented remote working policies – a measure that was only made possible by adopting and embracing technology. If technology as a service was not a serious consideration at the beginning of 2020, it certainly made the top of any technology policy by the end of the first half of 2020.
A key reason why the IT sector showed such resilience during 2020 was due to people and organisations embracing the various products and services available within the sector to develop new ways of working and living. The demand for these products and services increased the already resilient annuity revenue nature in this sector.
The increased H2 M&A activity was largely driven by transactions that were originally placed on hold during H1 allowing businesses and advisers time to evaluate the implications of COVID-19 in terms of transactions. However, new M&A activity also became evident from Q3, as buyers started to re-enter the market.
While Africa as a continent showed a relative stable activity in the IT sector, this trend is particularly evident with South Africa with H1 2020 showing a 37% decline compared to H1 2019, however the activity in H2 exceeded that of the previous year by 7%, as can be seen below.
In-terms of the sub-sectors of the South African IT Sector, Internet Software & Services, and Computers & Peripherals showed overall growth, due to the demand for these services growing and buyers looking to invest in these sectors.
One of our key indicators for an active market, is to consider cross-border, as is evident from the below graph, this activity increased by 50% in South Africa during 2020. Cross border transactions accounted for 43% of all M&A transactions in the South African IT Sector during 2020, compared to 23% during 2019. The sub-sectors driving cross-border M&A activity included IT Consulting & Services, Software, Internet Software & Services, and Other High Technologies.
Based on these trends, 2021 M&A activity in the South African IT Sector is expected to show a significant increase compared to 2020, especially as South African buyers begin to re-enter the market and compete with international buyers. Organisations have now come to terms with crisis management strategies and have optimised business models as a result, with information technology solutions forming the focal point of these strategies. A key driver for attraction to this sector is the typical high-degree annuity revenue factor and resilient earnings over this period.
Merchantec Capital’s network of both local and international buyers places us in the best position to guide you through partially of fully exiting your business during this opportune window.